Now that 2014 has come to an end and we’ve seen a preview of what 2015 has in store, we felt it was the right time to put together our projections for the year. We look forward to picking this back up in 2016 and seeing how many of these actually materialized over the course of the year.
Utility rates will be restructured – impacting existing solar users:
While states like Hawaii are proposing modifications to their NEM rate structures for new customers only, proposals in California and Arizona are establishing a precedent that rate design can impact existing owners of residential solar PV systems. California’s IOUs are proposing to the CPUC a fixed-charge to help cover the fixed cost of providing service, as well as a reduction from 4 tiers to 2 tiers, with a lower kilowatt-hour rate for large electricity consumers. Arizona utilities are proposing large fixed charges (estimated to be $50 / mo for the average solar user), with a grandfather clause of only 10 years for existing customers – even those currently in a 20 year lease. We expect that at least one of these states will pass rate reform in a way that does not fully protect existing solar users.
Customer focus on savings:
Technical discussions about rate design and NEM will spill into the mainstream media, leading consumers to re-evaluate their contracts. An easy consumer-facing tool to will enter the market (AmISavingMoneyOnMySolar.com is still available, folks!) and some consumers will be surprised to discover that savings did not match expectations. System performance issues that had previously gone unnoticed will also receive greater attention. Selective default risk will increase.
Predictive scorecarding will begin to develop:
Almost the entire solar industry underwrites to FICO scores, but there are many other contributing factors that one would logically conclude may lead to payment disruption- consumer savings chief among them. To understand homeowner satisfaction, one needs insight into both a) system performance and b) contract structure, including initial rate and annual escalator. Solar developers will increasingly see the importance of being able to integrate their electricity production and payment performance databases for the purpose of predictive analytics and will use these tools to improve asset management of existing portfolios, to inform underwriting standards, or to analyze refinancings (via securitization, warehouses, asset sales to YieldCos, etc.).
4. Investor focus on performance:
In tandem, investors will increasingly focus on customer experience over the life of the transaction in their underwriting of residential solar portfolios. We see solar portfolios of thousands of systems operating in a range akin to a “peaky” normal curve, and investors will closely monitor the tails of actual energy production and expected homeowner savings relative to baseline expectations. Additionally, investors will push the origination community to use increasingly conservative rate escalators in their consumer contracts.
5. Industry benchmarking will become standard:
In fragmented industries that have access to liquid capital markets, firms exist that provide industry benchmarking and analytics services. Corelogic does this service in residential mortgages, Measure One in student loans, Trepp in commercial mortgages, etc. We believe that new investors will seek out industry data to support their underwriting, and existing investors will benchmark their portfolios to industry standards to evaluate performance. The trend toward a more mature asset class, where the data is used to establish industry trends and open the capital markets vs. being siloed throughout the industry, will continue.
2015 will be a period of continued growth in the industry – Lyndon Rive has gone on record that every major provider should plan for 100% growth this year. As a result, many companies will be in a position of quickly scaling their origination pipeline using their existing software systems, while needing to adapt in order to support the needs of more sophisticated underwriting and to satisfy the demands of investors. This push for scalability will continue the need for software solutions focused on data management, data analytics, and independent industry benchmarking.
About the author: Jason Kaminsky is the Vice President of Partnerships at kWh Analytics. Founded in 2012, kWh Analytics enables solar investors and originators to take control of their risk management and asset reporting through a web-based portfolio management platform. The platform delivers risk insights and industry benchmarks from 40,000+ PV systems, integrated with an industry-leading analytics platform. The firm’s clients include several of the leading solar originators and financial institutions. http://www.kwhanalytics.com/